What Happens When You Can’t Charge Enough?

Ryanair, the European budget airline, reported a 46% drop in quarterly profits despite a 10% increase in passenger traffic. Read that sentence carefully! In short, Ryanair CEO Michael Leary is saying that business is booming—more passengers and new routes—but they can't charge enough to offset costs. They can't raise prices without compromising their value proposition, so as a solution, Leary proposes even lower fares in the months ahead to grow net revenue without adding much cost (think net tuition revenue!). Of course, the risk of cutting the price to boost passenger loads and increase profitability is that lower fares will further erode Ryanair's margin. 

The above sounds remarkably similar to the situation many private, independent schools find themselves in today. Interest is high as measured by inquiries, on-campus tours, and applications, but families opt for cheaper options, such as strong, specialized public charter schools. Costs largely cannot be cut without undermining the school's value proposition and prices cannot be raised without potentially driving away even more customers. The pressure this puts on already tight operating budgets is ferocious. In Ryanair's case, the airline remains profitable, just much less so than in the past, while for schools it is usually the difference between being in the black or the red.  

In short, like airlines, too many independent schools have a highly desirable product yet can't charge enough to cover their costs because they face price resistance even at current levels. We plan to explore this dilemma in a series of posts on this blog. Remember to follow our RSS feed in your newsreader for updates.